Clone Pty Ltd v Players Pty Ltd ((in Liquidation)) (Receivers & Managers Appointed)

• Jurisdiction: Australia Federal only
• Judge: Kiefel CJ,Gageler,Keane,Gordon,Edelman JJ.
• Judgment Date: 21 March 2018
• Neutral Citation: [2018] HCA 12
• Court: High Court
• Docket Number: A22/2017 & A23/2017
• Date: 21 March 2018

[2018] HCA 12

HIGH COURT OF AUSTRALIA

Kiefel CJ, Gageler, Keane, Gordon AND Edelman JJ

A22/2017 & A23/2017

Clone Pty Ltd

Appellant

and

Players Pty Ltd (In Liquidation) (Receivers & Managers Appointed) & Ors

Respondents

Representation

B C Roberts SC with R Bonig for the appellant (instructed by Finlaysons Lawyers)

A S Bell SC with P Zappia QC for the first to fourth respondents (instructed by Griffins Lawyers)

Submitting appearance for the fifth respondent

C D Bleby SC, Solicitor-General for the State of South Australia with B L Garnaut for the sixth respondent (instructed by the Crown Solicitor (SA))

Supreme Court Act 1935 (SA), s 17(2)(a)(i).

Equity — Where judgment given by Supreme Court of South Australia, as varied by Full Court of Supreme Court of South Australia — Where successful party engaged in malpractice — Where malpractice later discovered — Where perfected judgment set aside — Where no pleading or proof of fraud — Nature of court's equitable power to set aside perfected judgment — Whether equitable power extends to malpractice not amounting to fraud — Whether power to set aside perfected judgment conditional upon unsuccessful party having exercised reasonable diligence to discover fraud or malpractice.

Procedure — Perfected judgment — Rescission — Where two applications brought to set aside judgment — Where judgment set aside for malpractice — Whether proper course application in original proceeding or fresh action.

Words and phrases — “actual fraud”, “causation”, “equitable jurisdiction”, “equitable power”, “equity”, “finality”, “fraud”, “fresh action”, “malpractice”, “misconduct”, “new trial”, “not amounting to fraud”, “perfected judgment”, “perfected orders”, “power”, “proper application”, “reasonable diligence”, “setting aside”.

1 Kiefel CJ, Gageler, Keane, Gordon AND Edelman JJ. These appeals concern the equitable power of a court to set aside its own perfected judgments, namely its “formal orders … whether in the form of a judgment strictly so-called or a decree, order or sentence”1. The primary judge in the Supreme Court of South Australia set aside a perfected judgment of that Court based on misconduct not amounting to fraud. An appeal to the Full Court of the Supreme Court of South Australia was dismissed by majority. The essential questions in these appeals are whether the power of a court to set aside its perfected judgment extends to each of the following circumstances: (i) misconduct by the party who succeeded at trial which does not amount to fraud; and (ii) where the unsuccessful party failed to exercise reasonable diligence to discover the fraud or misconduct during the earlier proceedings.

2 The answers to each of these questions are as follows. First, the general power of a court to set aside its perfected judgment requires actual fraud, although there are other discrete grounds to set aside a perfected judgment which were not in issue in these appeals. Secondly, it is not a precondition to the exercise of the power that the party seeking to set aside the judgment exercised reasonable diligence to attempt to discover the fraud during the earlier proceedings.

3 In their applications to set aside the Supreme Court's perfected judgment, the first to fourth respondents did not allege or prove any fraud by the appellant. Therefore the appeals must be allowed.

The dispute that gave rise to these proceedings

The background to the first trial

4 In 1994, the first respondent in these appeals, Players Pty Ltd, negotiated with the appellant, Clone Pty Ltd, an agreement to lease from Clone run-down premises in Pirie Street, Adelaide. The proposed agreement to lease was for a term of 10 years with the premises to be renovated by Players to be used as a licensed hotel and gaming premises called the Planet Hotel.

5 In the course of negotiations, Clone's agent prepared a draft agreement to lease which was provided to Clone's solicitors. Clone's solicitors advised the agent that a clause should be inserted to address what was to happen to the hotel and gaming machine licences, to be obtained by Players, at the determination of

the lease. The solicitors subsequently drafted a clause, which became cl 11(i) in the agreement to lease, as follows:

“The Lessee will upon expiration or earlier determination of the Lease transfer to the Lessor any Liquor Licences or gaming machine Licences held in respect of the premises for NIL consideration.”

6 Various changes were subsequently made to the draft agreement to lease. One alleged change, which was at the core of many years of litigation culminating in these appeals, concerned an allegation by Players that the word “NIL” in cl 11(i) had been struck through in blue pen, with the alleged result that consideration was payable under the agreement to lease.

7 In August 1994, the agreement to lease was executed by three of the directors of Players, namely Messrs Griffin, McDermott, and May, on behalf of Players and personally as guarantors. The fourth director of Players, Mr Cahill, was overseas. Messrs Griffin, Cahill, and McDermott are the second, third, and fourth respondents in the appeals in this Court, whose submissions were made jointly with those of Players. Messrs Roche and England, on behalf of Clone, executed the agreement to lease, which bore a handwritten indorsement, inserted by Clone's solicitors, that it was subject to execution by Mr Cahill. Mr Cahill never executed the agreement to lease.

8 In September 1994, the agreement to lease, or a copy of it, was sent to the Licensing Court of South Australia. In January and March 1995, respectively, the Licensing Court (i) granted Players' application for removal and transfer of a hotel licence from premises known as the Grenfell Tavern to the Planet Hotel and (ii) issued Players with a gaming machine licence for the Planet Hotel.

9 On 30 August 1994, in accordance with its usual practice, Clone's agent sent a photocopy of the agreement to lease to the solicitors for the parties and retained the original in its files. It is unclear what happened to the original of the agreement to lease. The trial judge in the original proceedings – Vanstone J – said that it may have been lost when Players was unsuccessfully attempting to obtain the signature of the fourth director and guarantor, Mr Cahill 2. The original, rather than a copy, might also have been sent to the Licensing Court when Players applied for its hotel and gaming machine licences.

10 In March 1995, Players took possession of the premises and undertook a major refurbishment. Later that month, Clone's solicitors wrote to Mr Griffin, who represented Players in the negotiations and acted as the solicitor for Players. Clone's solicitors enclosed a draft memorandum of lease and a copy of the agreement to lease. In April 1995, Clone and Players executed the memorandum of lease with a 10-year term. The memorandum of lease contained provisions 3 consistent with cl 11(i), set out above, as well as clauses preventing Players from transferring or removing the licences.

11 During 2002, a dispute arose between Clone and Players concerning repairs to the premises. Players later alleged that during the course of this dispute, in a letter dated 30 October 2003, Clone had consented to the removal of the hotel licence and the gaming machine licence. In November 2003, Players agreed to sell the licences to Fairtown Holdings Pty Ltd for $750,000 for its use at Victoria Square, Adelaide. In December 2003, Players and Fairtown applied to the Licensing Court for the removal of the hotel licence to the Victoria Square premises. Fairtown also applied for the transfer of the hotel licence and a new gaming machine licence.

12 In March 2004, Clone commenced its original action against Players and its directors, as guarantors, in the Supreme Court of South Australia. Fairtown and its two directors were also joined as defendants in order to obtain injunctive relief to prevent further steps being taken in relation to Fairtown's applications. Further defendants included the Liquor and Gambling Commissioner, and the Licensing Court of South Australia, both of which took no active part in the proceedings and agreed to abide by the orders of the Court. Those defendants were subject to an order made on 6 July 2004 dispensing with any obligation to give discovery “[o]n the understanding that [they] will make available to the other parties their files in relation to this matter”.

13 There were five main issues in the proceedings:

• (1) whether Clone had consented to the removal of the hotel licence and the surrender of the gaming machine licence;

• (2) if Clone had consented, the conditions of that consent and whether they had been satisfied;

• (3) if Clone had not consented, whether Clone was obliged to pay reasonable consideration to Players for the licences upon determination of the lease;

• (4) whether Clone had validly terminated the memorandum of lease before its expiry for breach by Players, including issues concerning four notices to remedy various alleged breaches and whether those breaches had been remedied within the time stipulated; and

• (5) if any breach had been committed by Players which would have entitled Clone to terminate the memorandum of lease, whether Players should be granted relief against forfeiture.

14 In relation to the third issue, Clone had three alternative submissions: (i) the agreement to lease was not binding because Mr Cahill had not signed it as a guarantor; (ii) upon execution, the memorandum of lease became the sole and exclusive embodiment of the agreement and superseded the agreement to lease; and (iii) the agreement to lease provided for “NIL” consideration. As to (iii), the issue concerned Players' claim that the memorandum of lease should be rectified to conform to an obligation in...